City Comment

Standard response illuminates the pension liabilities gloom

When 15 out of 36 questions on a single day in the House of Commons are on one subject, even our anti-parliamentary Labour Government would be well advised to pay attention. Pensions are rising up the political agenda, and thanks to a French/American law firm anxious to make a name here, they might get into the courts too.

That they are a mess now is beyond dispute, and it would be a miracle if either of the two reports on savings that are due shortly do anything to improve things. It's likely, too, that the action promised from the tongue-twisting firm of Salans Hertzfeld & Heilbronn will cause more misery than it relieves.

The firm has procured agreements from nearly 1,000 employees of the Big Food Group to pay up to £100 apiece to challenge the latter's decision to close its final salary pension scheme to existing employees. The lawyers argue that the company is in breach of its contracts of employment.

There is precious little case law here, and this one will do as well as any, although the employees should realise that their contributions are merely a down payment for the legal fees, and that the case looks painfully thin. To win, the firm must convince the court that contracts agreed in different circumstances, perhaps decades ago, continue to have force.

Legal niceties aside, the BFG is not seeking to grind the faces of its employees like some Roald Dahl baddie; as the share price shows, it's trying to survive. The old scheme threatened to eat a quarter of group profits, even assuming a recovery in share prices, and Iceland is being ground in the supermarket mincer. It would be no help for employees to have rights to a final salary scheme from a bankrupt employer.

There is a great deal of nonsense talked about pensions, and it's getting worse. FRS17, the accounting standard which obliged companies to take a stab at their pension liabilities and show the resultant impact on profits, has concentrated minds wonderfully. Its postponement will not change the reality, but the proposal showed employers how final salary schemes could ruin good businesses. Only those with more money than sense should keep them open to new employees now.

Vivendi saga shows that excesses are universal

Those who thought corporate scandals all wore cowboy boots and ten-gallon hats got a nasty shock yesterday. Vivendi Universal shows that the characters with the starring roles in the excesses of the tech boom can have French accents as well as American ones.

A bull market creates an environment in which investors stop asking critical questions and ambitious chief executives get carried away. Occasionally they resort to fraud. Mostly, they just become so used to playing with billions that they get casual with the numbers. Some even think they are immortal.

One such is Jean-Marie Messier. His physical resemblance to a reincarnated Napoleon was always remarkable, and just as Bonaparte crowned himself emperor, Mr Messier christened himself in his autobiography Maitre du monde. His own march on Moscow was to buy Barry Diller's US Networks for $10 billion in shares last year, just after promising that the printing presses would stop.

It was a deal too far and a share placing in January this year, underwritten by Deutsche Bank and Goldman Sachs, was the final blow to his credibility. The results, when they emerged in the spring, were hilarious for their casual treatment of massive writedowns.

There is no suggestion that Mr Messier has committed a crime, but Vivendi has plenty else in common with the woes of corporate America, from incomprehensible accounting practices, the use of complex financial instruments and far too much debt.

The Vivendi crisis also differs from Enron in that it exposes the close linkage between French capitalism and politics. George W Bush has left the scandals to the market and the regulatory authorities, but Mr Messier was doomed only when the Elysee Palace saw the prospect of national treasures such as the Paris sewage system or Canal Plus, the cable company, falling into foreign hands.

Now Mr Messier has been exiled, and the shareholders must hope it's the equivalent of St Helena, rather than Elba. So far, his departure has not removed the "Messier discount", and the shares fell again yesterday, as the full extent of the collapse became apparent. Greed and incompetence during a bull market are not the preserve of Americans. Europeans can be as bad, although they do have more style.

IWP's accounts won't scrub up

Scrub as it might, Jeyes can't shift the red stains on its parent's accounts. Sales of its fluid might add up to half the revenue, but the debt at parent IWP just won't go away. The solution now proposed is to sell the subsidiary, but it's a pretty peculiar sort of sale.

The buyers are venture capitalists, and 21pc of the business will go to the existing Jeyes management, including Mark Colley, its chief executive and one of four executive directors of IWP. Two of his three other colleagues go onto the Jeyes board. It all seems jolly cosy.

Shareholders in IWP will be invited to approve the deal, but there's nothing in it for them. IWP's debts total £175m, and have depressed its market value to £124m, effectively ruling out a rights issue. Mind you, its value is rather less than the £134m on offer, for a company considered too small for a return to independence. Outsiders have only a few weeks to offer more, and deny Mr Colley his chance to clean up.